Key takeaways of the call

West Coast Paper Mill is a pulp based paper company located near Hubli. The company under took major expansion 10 years ago at a total costinvolving Rs 1400 crore. All the products of the company are stable and have their own ranking in the domestic market.

Total capacity of the company stood at 360000/tons per annum.

West Coast paper Mill acquired Andhra Paper Mill in Nov 2019 and the loan raised for the takeover was Rs 800 crore. As on Mar 31,2021, the total outstanding loan is Rs 650 crore including working capital loan. Of the total Rs 650 crore loan, Rs 100 crore loan is sales tax loan which is interest free payable over 7-8 years. As such Debt/Equity is comfortable.

The company has completed up-gradationprogram of all existing machinery and no major up-gradation is planned for FY22. Up-gradation have resulted in increase in production and quality of the products and is cost efficient.

Capacity Expansion: The company plans to install a new machine with a capacity of 1,30,000million ton once it gets all the environrnent clearances. Clearance may take 3- 4 months post which setting up the plant might take 18-20 months. Total cost of the project is expected at Rs 500-700 crore. The plant site will be atDandeli. The expansion will be on packaging paper side for which demand is good. For many high end packaging demand is there and is growing.

Financial Performance for the year: Paper companies are one of the worst affected and West Coast paper Mill operations were severely affected because 30% of the company's revenues are derived from writing and printing paper mainly from education sector. Operation in the last 9-12 months were severely impacted due to demand constraints and also due to disruption in production due to large number of covid cases.

April, May and June were affected due to second wave. However, things have started improving from June 15,2021 and things are getting back to normal on the production front.The company expects further improvement in demand and dispatches by July 15,2021.

The company expects normalcy in prices and production to come back by July 01,2021. The company expects reversal by 2 nd or 3 rd week of July and to be quite fast as there is no stock and printing activity will go at full pace.

Prices: The company has not seen any increase in prices of paper due to increase in cost of pulp. The company expects improvement in prices both in domestic and international markets in next 2 months. The company expects therealizations to cross which it saw last year.

In Q4FY21, the operations were normal resulting in cash profit of Rs 130 crore and net profit of around Rs 90 crore.

Production volume stood at 81,000/tons for Q4FY21 and 2,29,000/tons for FY21. Sales volume stood at 1,01,000/ tons in Q4FY21 and 2,34,000/tons in FY21. Average realization stood at Rs 54,000/ton for the Q4FY21 and Rs 55,000/ton for FY21. Capacity utilization stood at 102% in Q4FY21.

Pulp Prices: High pulp prices around US$ 700per ton is due to increased demand from China. Some of the pulp manufacturing plants not operating at full capacity. Non availability of containers resulting in freight cost in-turn resulting in high pulp prices.

EBITDA margins stood at 26% in FY19 and 24% in FY20. The company expects EBITDA margins to get back to 25% levels once normalcy returns. In FY21 EBITDA margins were impacted due to covid impact.

The company has captive pulp plant and captive power plant which protects it from volatility in input prices.

In Q4FY21 gross margins were impacted as recovery boiler was shut down for some replacement of tubes. This resulted in pulp mills not running at full capacities. In order to run paper mills, the company procured some quantity of pulp from outside resulting in lower gross margins. Also realizations were lower at Rs 53000/ton.

Pulp Consumption: 95-98% of the company's pulp requirement are met internally. Earlier around 6-7% of the pulp requirement were purchased from outside.

Other Income: Other income was higher in FY20 as the company had investments, which it redeemed during acquisition of Andhra Paper, resulting in other income of around Rs 49 crore in FY20.

Finance Cost: Finance cost was lower in Q4FY21. The company has Euro External Commercial borrowings loan. Exchange rate as on Mar 31 came down resulting in lower finance cost. Net impact was Rs 9 crore. However, in future if the exchange rate goes up than the interest cost will go up.

Tax rate: in first 3 quarters of FY21, the company had negative earnings, however in Q4 the earnings were positive resulting in fluctuation in tax rate in FY21.

In FY20, the company tax rate stood at 17% and expects to continue around same rate for next 2-3 years before it returns to normal rate of 25% since it has deferred tax adjustments for which it will account for.

EPS: Incremental EPS on consolidated basis at Rs 11.34 per share when compared to Rs 8.27 per share on standalone basis is due to holding in Andhra PaperMills . The company holds 72% of equity share capital in Andhra Paper.

Dividend: The company is paying dividend regularly over last 20 years. In last 20 years, the company has skipped dividend in 1 year. The company has paid more than 250% dividend in last 4 years.

On a consolidated basis, Other investments to the tune of Rs 108 crore under non current financial assets and Rs 111 crore under current financial assets are liquid investments held in Andhra Paper Mills .

Merger of Andhra Paper and West Coast Paper: The company has given the task to professionals but they could not progress due to covid situation. Once they come out with the report, looking at the pros and cons, the company will decide whether to merge or not and also if it will go ahead with merger when to go about it.

Telecom: The company does not have any plans to demerge telecom business.

The company is expanding under telecom through backward integration of high grade fiber. The total CAPEX for the project is Rs 120 crore of which Rs 30 crore is subsidy from state and central governments and the balance Rs 90 crore is net investment from the company.

Andhra PaperMill's, pulp capacity stands at 550 tons and plans to increase by around 150 tons by up gradation of plants. Further, the company plans to increase paper capacity in next 3-4 months.

Wage settlement: Wage settlement is yet to happen. Wage settlement usually happens once in four years. However, even if there is an increase it will not have any impact as the company has already provided for the same.

Export Opportunity: The company is not doing much of exports. Usually export prices are cheaper than domestic prices. However, considering other benefits from exports, company might look for export opportunities going forward.

Import of copier: The government has imposed anti dumping duty of US$ 855 on copier till December. Further, the domestic paper industry will ask for extension of anti dumping duty on copier as such the company does not see any competition from import for copier.

Growth:The per capita consumption of paper in India is 15 kgs when compared to global average of 57 kg. Further, the government has allocated Rs 93,000 crore for education through various schemes which augers well for the paper industry.